PFC's second innings

Summary: PFC’s turnaround has been driven by cleaner balance sheets and a supportive sector cycle. The real question now is whether it can sustain this momentum through the next phase.

Summary: PFC’s turnaround has been driven by cleaner balance sheets and a supportive sector cycle. The real question now is whether it can sustain this momentum through the next phase. Many things are going right for state-run lender Power Finance Corporation, or PFC. A new investment cycle in the power sector, a recovered balance sheet much cleaner from the past and sober valuations are all working in its favour. A re-rating looks possible, but even without it, the business is staring at meaningful growth, comparable with other large banks and financial institutions trading at multiples higher than PFC’s price-to-book of around one. To understand why the picture looks more favourable today, it’s important to first dial back to when they weren’t. What’s changed PFC, long the largest financier to India’s power sector, was left bruised six years ago due to the sector’s troubles. Stalled generation projects, weak discom (state electricity distribution companies) finances and delayed payments pushed PFC’s gross non-performing assets to as high as 9 per cent in March 2019. But today the picture looks markedly different. By March 2025, gross NPAs have declined to around 2 per cent and the improvement appears largely genuine rather than cosmetic. A good two-thirds of the reducti